3 Numbers to Watch: EZ M3, EU confidence, US income and spending

This is a big day in terms of data releases and events. The European Council meets today and tomorrow, trying to hammer together an understanding on the banking union, based on last night’s attempts by the European finance ministers to find a compromise. With only little time ahead of the German elections and the conflicting views of the participants, it is not likely that a lot of progress will be seen.

Also note that there will be plenty of data from Japan in the early hours of Friday. The numbers will tell the markets if ‘Abenomics’ has started working or not, and that could have an effect on the policy choices of other central banks as well. Markets could start adjusting already toward the US close. Today’s notable speeches include, the Federal Reserve - Dudley 14:00 GMT, Powell 14:30 GMT, Lockhart 16:30 GMT - and from the European Central Bank Mersch at 17:00 GMT.

EZ May Monetary developments in the euro area (M3) (08:00 GMT).The M3 monetary aggregate is expected to have risen by 2.9 percent from one year ago, slightly less than 3.2 percent reported in the previous month. Private loans are expected to have fallen by 0.9 percent from one year ago. The monthly changes have stabilised lately, and the narrow M1 showed a nice increase last month. This usually leads to an increase in the broader aggregate after a lag of several months, but Europe is currently anything but usual at the moment.

Even if loan growth actually materialises, there are many things that could still go wrong later. ECB’s Draghi sounded dovish in his latest speech, but before the German elections, banking union talks and the German constitutional court’s verdict it is hard to believe in any new policy announcements from the central bank. Note that Germany’s June employment statistics are published five minutes before the ECB report.

EU June Business and Consumer Surveys (09:00 GMT). Consumer confidence is expected to have improved a lot to -18.8 from -21.9 in May. The improvement in economic confidence is expected to be much smaller, as the industry does not share consumers’ optimism. Lower interest rates and less crisis headlines are probably some of the drivers for the optimism, but as households’ balance sheets have not improved enough yet, any impact on loan demand should be limited.

US May Personal Income and Outlays (12:30 GMT). Personal income is expected to have risen by 0.2 percent and spending by 0.3 percent. Income was flat in April, while spending actually fell by 0.2 percent. Growth rates have been trending lower for the past two years, but that is understandable normalisation after the rapid recovery phase.

First quarter GDP was yesterday revised to lot lower than expected, from 2.4 percent to 1.8 percent, with private consumption and investments taking the largest hits. I briefly discussed this possibility yesterday, and WSJ has more on this. This revision is too much for the Federal Reserve to ignore, and it is possible that the recent tapering scare could reverse for a while, as markets start expecting additional delays to tapering the asset purchase programmes. The PCE price index is released simultaneously, and as low inflation is one thing that the central bank watches, so should you. Core PCE is expected to have increased by 0.1 percent, which is too little.

While I mentioned yesterday that ‘good news is now good for prices’, this particular data point could be different. If growth is not present, or there is some weakness in the underlying data, I expect EURUSD to correct higher on expectations of an easier Fed. Also, European data and some statements from European leaders could be EUR-positive. Technically this would also make sense, as the 1.30-level has now been reached and there seems to be no willingness to push the pair lower, as the longer technical range's bottom is already quite near. See my view from one week ago for more.

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